Capital Markets: "Weak Turn-Around Tuesday"

From Marc to Market:

Overview: The US dollar has a heavier bias against most of the major and emerging markets currencies, but the pullback is shallow, and the greenback's underlying strength is still evident. Asian equities were mixed. Concern that Apple may be reducing orders weighed on suppliers, but news that China and US trade talks are resuming boosted sentiment, allowing Chinese stocks to recover helped lift the Australian and New Zealand dollars. All the major industry groups in Europe's Dow Jones Stoxx 600 are higher but energy as oil prices reversed lower yesterday following US President Trump's complaints about the Saudi decision to export 500k few barrels of oil a day starting next month. Brent is trading near $69, and WTI is around $59. Italian stocks and bonds are underperforming today as the market expects the EC to begin excessive deficit procedures as the revisions to the budget proposals are not thought to be sufficient.

Asia Pacific
There are two main talking points in Asia today. The first is industry specific. Concerns that iPhone suppliers may be experiencing a significant cut in orders spurred a wave of selling in the Apple ecosystem. The Nikkei gapped lower, and although it managed to close near session highs, it was still off 2%, the most in three weeks.

The second talking point helped bolster sentiment, aiding the recovery in the Chinese markets, and by extension, several other markets as well. Reports indicate that Chinese Vice Premier Liu He and US Treasury Secretary Mnuchin have resumed trade talks ahead of the G20 summit on November 30-December 1 where the two presidents will meet. At the risk of being cynical, investors are exaggerating the significance. Yes, on one level talking is better than not. However, China has been willing to talk throughout, while the US complains that China has not made serious counteroffers to US demands. It appears Chinese officials do not want to get into the "Art of the Deal" dynamics, where one side make strong demands and expects the other to draw close to it in a compromise.

Moreover, Chinese officials appear to feel betrayed by the experience earlier this year when it thought there was an agreement that it would buy more US goods to close the bilateral trade imbalance. It was negotiated with the US Treasury Secretary and later rejected by the US President. As trade adviser, Navarro, a hawk, warned yesterday, on he and the president should be engaged in trade negotiations. Chinese officials seem to recognize that trade policy in the Trump Administration is not set by the Treasury Department. The markets seem to be clutching to straws, and if we are right, the disappointment will be palpable.....

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